Friday 18 February 2011 09.24 EST
First published on Friday 18 February 2011 09.24 EST

The novelist Ian McEwan will criticise Israel's occupation of Palestinian land in his speech accepting the Jerusalem Prize for literature on Sunday evening, saying that the open and democratic nature of novels is antithetical to the government's settlement policies in the West Bank and East Jerusalem.

He will refer to "a strand of nihilism which is closing off the future here", he told the Guardian shortly after his arrival in Israel for the ceremony. His attendance has drawn bitter criticism from supporters of the Palestinian cause.

The author took part in the weekly protest in Sheikh Jarrah, an area of East Jerusalem which has seen Jewish settlers evict Palestinian residents to take over their homes and establish hardline footholds in the Arab part of the city.

In the company of the celebrated Israeli author David Grossman, McEwan spoke to activists who told him they appreciated his presence. "The welcome I had from various strands of the Israeli peace movement completely vindicated my decision to come," he said. "They feel the tide is running against them. I feel it's very important to support that important hope and conscience. It was very stirring."

McEwan attempted to get close to the homes from which long-term Palestinian residents have been expelled by settlers but was prevented by Israeli security forces. "But I got a good sense of how Palestinian families are waiting to be evicted," he said, adding they faced a "relentless tide".

He said he intended to "make my own thoughts clear" when accepting the prize from Jerusalem's mayor, Nir Barkat, an enthusiastic advocate of expanding the Jewish presence in the east of the city.

East Jerusalem was occupied and later annexed by Israel in 1967 in a move illegal under international law and not recognised by most of the international community. Settlement building and expansion there has been a key issue blocking peace negotiations.

The Palestinians want East Jerusalem as the capital of a future state.

McEwan said he planned to make further visits to East Jerusalem and the West Bank during his stay.

Earlier, at a press conference in Tel Aviv, the author described Israel as a "country with true democracy of opinion" and defended his decision to receive the award, saying it was "much more useful to come and engage and keep speaking" than to freeze out or boycott Israel over its occupation of the Palestinian territories.

"I am very conscious of being in a country with a true democracy of opinion," he said. "I am perfectly aware that you cannot isolate [literature] but I take it as a bad sign when politics permeates every corner of life. I don't feel I endorse every corner of Israel's domestic or foreign policy … but I feel it's right to engage with it."

He said it was a great honour to be awarded the prize, to be presented at the opening of Jerusalem's International Book Fair, pointing to past recipients as "writers and philosophers of such distinction".

"Like most people, I want Israel to flourish. I'm very concerned that things have reached such a stalemate politically. It seems to me to be a rather depressing time politically to come here – but that makes it all the more urgent to keep talking."

McEwan faced calls in the UK to reject the prize in protest at Israel's continued occupation of the Palestinian territories. In a letter to the Guardian last month, British Writers in Support of Palestine said the writer's acceptance of an award in recognition of individual freedom in society was "a cruel joke and a propaganda tool for the Israeli state".

The author responded at the time by saying that despite his opposition to illegal settlements, he was in favour of "dialogue, engagement, and looking for ways in which literature … can reach across political divides". On Friday, he said it was a "fatal error to confuse people with their governments".

He had spent the past few weeks "camped out in front of my television set" watching the pro-democracy protests in Egypt and other countries in the region.

He felt exhilarated by what he saw, and was struck by the swift collapse of the "social contract – how people feel bold enough to withdraw their consent. Crowds aren't usually wise, but [the Egyptian protesters'] restraint under pressure was heroic."

But he warned that "the story was still unfolding". Referring to the bloody response of the Bahrain regime to protests, he said: "Egypt has raised the game for the tyrant – they know they've got to get in quick and hold everyone down."

He added: "For every moment of exhilaration on the street, there is a Robespierre in waiting."

He hoped the Israeli government would "welcome the spread of democracy rather than be too distrusting. Netanyahu said Israel must hope for the best and prepare for the worst. Hoping for the best is not enough, maybe [Israel] should be agitating for the best."

Israel, he suggested, should harness its creativity in other spheres to the peace process. "Politics is too bunker. Israel needs to summon up the creative energy of its scientists, musicians, writers and artists and extend it into politics."

He paid tribute to contemporary Israeli novelists such as Grossman, Amos Oz and AB Yehoshua, who "had made a huge impact around the world".

McEwan declined to discuss his next novel, saying only it was "slightly more historical, meaning it's set in 1972" than his latest book, Solar, about climate change.

He hoped the award of the Jerusalem prize was not a valedictory on his career, "especially as I'm half way through my next novel. I feel like Mrs Thatcher: I will go on and on."

Prize controversies

The literary prize suggests a rarefied world, but it can also be a contentious one. Launched in 1996 to counter a perceived overlooking of women authors by existing literary awards, it was the Orange prize's very raison d'être that attracted ire.

Amid widespread chuntering about it being discriminatory, Germaine Greer, pictured, complained that someone would soon found a prize for writers with red hair, while Auberon Waugh nicknamed it the Lemon prize. Guardian columnist Simon Jenkins wasn't happy either. "The Orange prize is a blot on Britain's literary landscape," he wrote after its launch. In 2005 he expanded: "I'm amazed, frankly, that it's lasted so long. It validates all those men in the Garrick who refuse to admit women."

The Booker prize The pre-eminent book award, the Booker prize, has also had brushes with notoriety. In 1972 John Berger used his acceptance speech to trot out the usual platitudes. Instead Berger launched a stinging attack on the prize itself, drawing attention to the fact the sponsors, Booker-McConnell, had acquired much of their wealth from 130 years of trading in the Caribbean. "The modern poverty of the Caribbean is the direct result of this and similar exploitation," he said. Berger donated half his £5,000 prize money to the Black Panthers – "the black movement with the socialist and revolutionary perspective that I find myself most in agreement with in this country". Adam Gabbatt

• This article was amended on 19 February and 21 February. The headline was updated at 9.44am on Saturday 19 February to reflect the latest developments. The original referred to sponsors Booker McGonnall. This was corrected on 21 February.